Monday, March 08, 2010

Monday VIXology and MLR

Here's a quick look at the VIX and VXX on both daily and weekly bars. It's instructive to view these two together as the VIX has declined 50% since last May, while the VXX has declined
75%, with considerably fewer rally episodes. Of course, the VIX is a statistic and the VXX is a tradeable ETN so we're not really talking apples and apples here. But potential VXX traders should take note of the VXX chart as it probably reflects underlying volatility sentiment in a truer fashion than the VIX. I've run the VIX against VXX in a Project Z study that I'll post later in the week to support that contention.
For now the downtrend in VIX/VXX remains, with VXX hitting lower lows each day and with the VIX retracing Friday to a previous low of Jan 11th. . .which was followed by a month long double top rally. This is really a critical breaking point for the VIX and this week should reveal what the near term trend will likely be.

Looking for some guidance this week, the MLR Rotator shows IWM has ignored upper resistance as it blows the doors off the other model components but it's ability to continue on this surge is more than a little suspect. The Qs showed their stuff as well last week and are now sitting at long term resistance (along with many of the other top ranked components). It's not clear what the catalyst would be to drive the markets even higher . . one thing it's not is jobs.

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